For many years, Tesla has defied conventional financial wisdom, and betting against Elon Musk has been a loser’s game. However, we believe right now the market is witnessing peak Iron Man, and that the time has finally come for the great Tesla short.
With a one-line tweet earlier this week, Musk announced the largest leveraged buyout in history.
This likely caps the upside for even the most ardent Tesla bulls. US$420 per share is just 13% north of last night's closing price.
But should the bid now fall over, we think the downside from here for Musk - and Tesla shareholders - is potentially far greater.
Yes, we have driven the cars (we love them).
Yes, we have read the Musk biography (couldn’t put it down).
And yes, Musk is an exceptional entrepreneur.
However, in the end, the laws of economics apply to all men.
As do the laws of the U.S. Securities and Exchange Commission.
Over the last 6 years, Totus has had a number of wins shorting companies with questionable business models, stratospheric valuations, and highly promotional management teams.
The bear case on Tesla is well understood, and includes high cash burn, competition catching up, and growing pains for the Model 3.
But when a CEO under extreme pressure lobs a light-on-detail privatisation proposal, the potential payoff for a short position improves.
Investors in SurfStitch, Quintus and BWX have seen this movie before.
And as Marvel fans know, even Iron Man doesn’t win them all.
Totus is a long/short investment manager principally investing in listed equities and index futures in Australia and internationally. Find out more here (VIEW LINK)
Totus has a short position in Tesla.